Salman Partners comments on Fission Uranium CorporationAccording to Salman Partners:
Metals and Mining - Uranium Development
Fission announces positive results of a PEA on Triple R
Event: Yesterday, Fission Uranium Corp. (FCU - TSX) released positive results of a Preliminary Economic Assessment, prepared by RPA Inc., on Fission's Triple R uranium deposit, at its 100%-owned Patterson Lake South property in the Athabasca basin, in Saskatchewan. The PEA, which was based on Inferred mineral resources, evaluated the development of a hybrid open-pit and underground mine with a 1,000 tpd mill. The construction of a dyke system (dyke and slurry wall) for water control was also incorporated in the analysis.
Highlights:
• LT U3O8 price assumption of US$65/lb; US$0.85 per Cdn$
• Post-tax NPV (10%) Cdn$1.02 Bn
• Post-tax IRR of 34.2%
• Post-tax payback of 1.7 yrs
• Average LOM OPEX of US$14.02/lb
• Initial CAPEX of Cdn$1.1 Bn (including the construction of the dyke system and a healthy Cdn$208 M contingency, approximately 23%)
• 14-yr mine life producing on average 7.2 Mlb of U3O8 per year
• Process recovery of 95%, supported by metallurgical testwork
• Full report to be filed in 45 days
Impact: With the average operating costs of US$14.02/lb U3O8 over the life of mine, Triple R can potentially become one of the lowest cost uranium producers in the world. The PEA highlights healthy post-tax NPV, IRR and a 1.7 year payback period, at the US$65/lb long-term uranium price assumption. This assumption is not far off our own long-term forecast of approximately US$60/lb, however we would be interested to see a sensitivity analysis of the project's economics at lower uranium prices, if provided in the full report.
We view the result of the PEA to be largely in line with our own expectations, and that it is, overall, positive for Fission Uranium Corp. and Denison Mines Corp. (DML - TSX), with which Fission has entered into a definitive merger agreement. The price of shares of both Fission and Denison swung between gains and losses yesterday and closed up, 1.28% and 1.59%, respectively, while other uranium equities had a mixed day. We believe investors are concerned about the large capital cost of approximately Cdn$1.1 Bn. Such a large capital requirement did not surprise us, but does present a significant challenge given the current tough market conditions.